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May 2021 | Issue 234
CLOs are here to help with infrastructure expansion
Hugh Minch
Issuers of CLOs backed by infrastructure debt are looking forward to a boom as investors turn to infrastructure projects as a way out of the pandemic slump.
The first signs of increased infrastructure CLO volumes are already visible, with three transactions printing in the first quarter of 2021. Sequoia Investment Management Company and Starwood Property Trust issued inaugural deals, while market stalwart DWS Group teamed up with BNP Paribas to print its fourth infra CLO, RIN IV, in March.
DWS was behind the first infrastructure CLO to print following the global financial crisis with 2017’s RIN I.
Jonathan Newman, head of private infrastructure debt for North America at DWS, says US infrastructure has lacked investment for too long. “The nation’s stock of infrastructure has been serially under-invested in despite decades of economic boom and some population growth.”
“The nation’s infrastructure has been under-invested in despite decades of economic boom”
Jonathan Newman, Head of private infrastructure debt North America |
DWS identifies between $80 billion and $100 billion of assets that fall into its definition of infrastructure that are sub-investment grade and fit the attributes for securitisation in CLOs. Only a small portion of this market is securitised.
Assets go beyond traditional project finance loans to include investor-owned utilities, privately-owned renewables, gas-fired power plants, cell towers and data centres.
Alexander Wall, head of US CLO syndication at BNP Paribas, hopes to bring the bank’s existing roster of CLO investor partners into deals backed by infrastructure credits and has seen interest from across Europe, Asia and the Americas. “Our goal is to have a structure as close to broadly syndicated loan CLOs as possible,” he says.
“The investors that look at these deals already understand the CLO structure,” New York-based Wall adds. “What they’re learning about has more to do with the underlying asset opportunity.”
Infrastructure CLOs typically have more equity than corporate credit CLOs. Triple A spreads on infrastructure CLOs have averaged 140 basis points to date in 2021.
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Global credit funds & CLO's
May 2021 | Issue 234
Published in London & New York.
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